October 21, 2011 / 12:01 PM / 7 years ago

Analysis: France's "Silicon Sentier" thrives as web hotbed

PARIS (Reuters) - A boom in French internet start-ups, nurtured by an emerging class of homegrown web-savvy investors, is providing a welcome jolt to a country often stereotyped as captive to tradition and hostile to innovation.

Xavier Niel, main shareholder of French broadband Internet provider Iliad, speaks during a news conference to launch the new Freebox Revolution (internet multimedia modem) in Paris December 14, 2010. REUTERS/Jacky Naegelen

A dozen executives and investors told Reuters this week that inter-generational coaching has been key to a budding internet scene, clustered around the old Sentier garment district in central Paris — now baptized Silicon Sentier.

Entrepreneurs such as Xavier Niel, who created multi-billion euro public company Iliad SA (ILD.PA) in telecoms, and Marc Simoncini, founder of France’s biggest dating website Meetic SA MEET.PA, have graduated to the big league and are financing, mentoring and inspiring budding techies.

Investors and executives also acknowledged the industry risked becoming a victim of its own success, as many of its best companies are snapped up by foreign competitors instead of growing independently to become France’s own Google or Facebook.

“Smart young people in France today no longer dream of going to work as high-level civil servants in the Ministry of Finance, they want to be entrepreneurs,” said Nicolas Celier, a partner at Alven Capital, which backs some two dozen French web start-ups via its 150 million euro ($205.5 million) fund.

“It is a massive change in a country where business people have historically been viewed negatively.”

France attracted 1.6 billion euro investment in venture or seed capital in 2010 and 2009, while Britain took in 1.4 billion and Germany 1.3 billion, according to the European Private Equity and Venture Capital Association.

It is a shift from the previous two years in which British start-ups racked up 2.9 billion euro in investment, compared with 1.9 billion in Germany and 1.2 billion in France.

MORE RESISTANT

Jean-David Chamboredon, who heads ISAI, a fund that invests in start-ups and which draws on money gathered from about 70 investors who are themselves internet entrepreneurs, said venture capital funding in France had proven more resistant to recession than in neighboring countries.

The reason? Nearly half of VC investment comes via a government scheme that gives individual investors tax breaks for contributing to funds that back start-ups. Such policies exist in Britain, for example, but are not as widespread.

The resources have given birth to a slew of tech start-ups in everything from on-line advertising to telecom software.

Some have already reached critical mass. Companies like “flash sales” pioneer Vente Privee, which recently announced a joint venture with American Express Co (AXP.N), are seeking to expand beyond France through partnerships.

Music streaming service Deezer and LinkedIn rival Viadeo are taking the different tack of expanding abroad, except in the United States so as to avoid head-on competition with established on-line giants.

Budding entrepreneurs with much earlier-stage ideas even have their own school, in a neoclassical palace that once held the Paris Bourse. Entrepreneurs Xavier Niel, Marc Simoncini and Vente-Privee founder Jacques-Antoine Granjon founded the school this year to train students for internet careers.

The trio, who are close friends, dreamt up the project because they could not hire enough qualified people for their own companies.

If a talent deficit is one threat to the French web boom’s durability, a more significant one may be the difficulty of encouraging start ups to grow organically, rather than simply succumbing to takeover offers from deep-pocketed foreigners.

ECONOMIC ACTIVITY

France’s FSI sovereign wealth fund is trying to encourage tech start-ups with proven business models to stay independent longer so as to create economic activity and employment at home.

Marc Julien, a director of investment at the fund, said the FSI wanted to avoid repeating a recent history of France’s top start-ups and tech companies passing into foreign hands.

On-line retailer Price Minister sold itself to a Japanese e-commerce leader Rakuten 4755.OS last year, while German media group Axel Springer (SPRGn.DE) snapped up women’s online magazine Aufeminin.com and real estate listing site SeLoger.com.

Another promising start-up, Qosmos, which makes software to help telecom operators manage network traffic, has attracted two buyout offers from overseas. But instead of selling, Qosmos raised 19.8 million euros from new investors, including 10 million from the FSI, and the rest from American fund DFJ Esprit and France’s Alven Capital.

“We were worried that they would take all the French engineers and move them to Palo Alto,” said the FSI’s Julien.

The money will help Qosmos, which now has about 10 million in sales and is profitable, to continue to grow the business and expand abroad. “We want to make sure that French companies are the ones consolidating their sectors and not being bought up,” said the FSI’s Julien.

Yet the French internet sector may be able to thrive regardless of its owners’ domicile.

For investor Jean-Louis Chamboredon, a protectionist approach is wrongheaded because foreign buyers often offer better prices and perspectives for future development.

“I have participated in selling some 20 companies all to foreign buyers,” he said. “When PriceMinister or SeLoger is bought by a foreign company, it brings wealth to France and is a sign of success not failure.”

Roland Tripard, CEO of SeLoger.com, said being bought by Springer would help accelerate the company’s development. “The knowhow, the jobs and the company are all still in France,” he said. “And in fact we are now looking to expand overseas with the extra firepower brought by having a big industrial owner.”

($1 = 0.730 Euros)

Additional reporting by Marie Mawad and Gwenaelle Barzic; Editing by Christian Plumb and David Holmes

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